My first multi-family generating over $7,500/mo passive income

99 Replies

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $1,340,000
Cash invested: $300,000

This was our 1st value-add project in the neighborhood. It's a 27 unit with 4 retail and 23 apartments ranging from studio size through 3 beds. The rent roll at closing was just under $19K per month and we've been able to raise that to $27K per month within 6 months of aquisition.

What made you interested in investing in this type of deal?

This was a high yield play. We wanted to generate passive income and have the ability to force appreciation.

How did you find this deal and how did you negotiate it?

This was found through a local agent in the area. I let him know the price range and type of cash-on-cash returns we were looking for.

How did you finance this deal?

Financed conventionally through US Bank. 80 LTV with a 5 year balloon. We plan to cash out refinance next year into agency debt for the long term.

How did you add value to the deal?

We were able to renovate the vacant units right away after purchase and a couple others during normal turnover. We spend approx. $6-$7k per door on new kitchens, baths, paint and refinishing the hardwood floors. We plan to add laundry next year.

What was the outcome?

The value of the building as a 10 CAP has already increased by about $450K. It was a 'mom and pop' ownership previously. We have been able to modernize some of the units and manage it more professionally. We're getting better and higher paying tenants. And it's lead to another opportunity in the neighborhood for a 50 unit portfolio. We're now under contract for those properties after the listing agent reached out to me.

Lessons learned? Challenges?

It's high risk and high reward when taking over a 'mom and pop' property. There were no bank statements or professional P&L reports to underwrite with. Some tenants challenged our property manager with slow/late payments. We're slowly turning those units over. Overall it's been a great deal.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Jack Cassin from Apartment Investment Advisors
Namit Bammi from the Bammi Law Group
Paragon Property Management.

Congratulations @Gary Guidi! Did you hire an outside property management company? I am currently in California but I have family in Chicago. Do you think investing there would be worth a shot for me?

@Amy Aziz I definitely hired out a 3rd party property management company. I have no experience in property management and didn't want that to become a full time job. Chicago is interesting as an investor. It has a bad national reputation. But that provides a lot of opportunity for someone who knows the area. I live in the city with my family but invest in other neighborhoods. You really have to have a pulse on the smaller areas almost block by block in Chicago. What are your investment goals? Is CA challenging for other reasons like price?

Promotion
Azibo
Smart landlords use Azibo
One-stop-shop for landlords
Rent collection, banking, bill pay & access to competitive loans and insurance - free for landlords
Get started for free

@Gary Guidi I am currently looking to invest in SFR's. With the program I found I don't need to be there I just need a person I can trust to check out the home before I purchase it. Chicago always holds a special place in my heart and since I have family there I was thinking of choosing a county to start in. But with your advise I am going to need to be more detailed than I thought. Thank you so much!!

Originally posted by @Ann Folan :

@Gary Guidi Congratulations, beautiful building! What neighborhood did you purchase in?  This property is on the west side in Austin near the border of Oak Park.  

@Gary Guidi - congratulations, this is tremendous! Love the value add and that you got the deal through an agent relationship.

Do you plan to hold long term?

What's next for you?

Promotion
Obie Insurance
Coverage for your rental
Get a quote for your rental property in 2 minutes or less.
Save on landlord insurance. A transparent, simple, and affordable way to protect your investment.
Start Saving
Originally posted by @Jeremy Corporan :

@Gary Guidi

Congrats on your first multi what a monster return. Maybe I missed it but how much did you put down on the property?  I put down 20% and another $25,000 in repairs and apartment updates.

Originally posted by @Taylor Chiu :

@Gary Guidi

Very inspiring! How did you come across the deal in the first place?  I had been networking with local Chicago agents and letting them know my price range and desired cash on cash returns.   And an AIA agent brought this up for me. 

@Gary Guidi

Great deal Gary! I'm sure lots of hard work and many learning curves happened during the process. I have a few more questions if you wouldn't mind.

What's the biggest lesson learned?

How long did it take you from being brought the deal to closing the deal?

How long did it take to stabilize the property from purchase to fully rented?

Did you find that 6$-7$k was enough to fully revamp each unit?

Did you have to do anything with the commercial spaces, or were they rented?

Thank you!

Erica

@Gary Guidi, Congratulations! Im not familiar with Chicago rental laws so I ask - Is there any rent controlled units in your building? If so how is it calculated in terms of X amount of doors must have Y amount of rent control.

Originally posted by @Erica Osborn :

@Gary Guidi

Great deal Gary! I'm sure lots of hard work and many learning curves happened during the process. I have a few more questions if you wouldn't mind.

What's the biggest lesson learned?  For it me was getting comfortable being uncomfortable.  I decided last year that multi-family was the best route for me.  I wanted to transition out of my W2 job as a residential mortgage loan officer.  I had to convince my wife that this was a good deal which was a really challenging 'meeting' with my first investor.  She's in commercial lending so it wasn't just a 'I love you and believe in you' kind of thing.  She tried to poke holes in it from every direction but in the end liked the deal and saw the value play.  I'm a full-time investor now but at that time I was just learning the language of multi-family.  I tripped over CAP rate, value-add and DSR more times than I can count for a few weeks. I was working with a one on one mentor and couldn't have done it without his guidance.  Get a mentor in some capacity is what I'd suggest to anyone trying to close their first deal.  If someone can't afford to directly pay for a mentorship program, figure out a way to apprentice your way through it by providing some value to an experienced investor.  

How long did it take you from being brought the deal to closing the deal?  I toured it in early December.  Was under contract 12/22 (my birthday!).  And closed by mid-March. 

How long did it take to stabilize the property from purchase to fully rented? Between 3-4 months.

Did you find that 6$-7$k was enough to fully revamp each unit? Yes.  We remodeled the baths, kitchens, sand & stained original floors, painted and added ceiling fans.  More than that would have been overkill for Class C in this area.  But doing those things raised the rent from $800/mo to $925/$950 for our 2 beds. 

Did you have to do anything with the commercial spaces, or were they rented? Fortunately, there was only 1 vacancy of the 4 retail.  We didn't have to change anything for a legal services company to come in a lease it out.  In the long run, we may ask the local alderman to help us change the zoning on those to residential.  We could convert them to apartments for those with disabilities.  There's super high demand for wheel chair accessible affordable housing.  That would be a great long term solution down the road. 

Thank you!

Erica

Originally posted by @Gary Guidi:

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $1,340,000
Cash invested: $300,000

This was our 1st value-add project in the neighborhood. It's a 27 unit with 4 retail and 23 apartments ranging from studio size through 3 beds. The rent roll at closing was just under $19K per month and we've been able to raise that to $27K per month within 6 months of aquisition.

What made you interested in investing in this type of deal?

This was a high yield play. We wanted to generate passive income and have the ability to force appreciation.

How did you find this deal and how did you negotiate it?

This was found through a local agent in the area. I let him know the price range and type of cash-on-cash returns we were looking for.

How did you finance this deal?

Financed conventionally through US Bank. 80 LTV with a 5 year balloon. We plan to cash out refinance next year into agency debt for the long term.

How did you add value to the deal?

We were able to renovate the vacant units right away after purchase and a couple others during normal turnover. We spend approx. $6-$7k per door on new kitchens, baths, paint and refinishing the hardwood floors. We plan to add laundry next year.

What was the outcome?

The value of the building as a 10 CAP has already increased by about $450K. It was a 'mom and pop' ownership previously. We have been able to modernize some of the units and manage it more professionally. We're getting better and higher paying tenants. And it's lead to another opportunity in the neighborhood for a 50 unit portfolio. We're now under contract for those properties after the listing agent reached out to me.

Lessons learned? Challenges?

It's high risk and high reward when taking over a 'mom and pop' property. There were no bank statements or professional P&L reports to underwrite with. Some tenants challenged our property manager with slow/late payments. We're slowly turning those units over. Overall it's been a great deal.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Jack Cassin from Apartment Investment Advisors
Namit Bammi from the Bammi Law Group
Paragon Property Management.

Sounds like a good deal!  How do you like owning property in the Austin neighborhood?  I live in Oak Park and I am looking at a couple of deals not far from yours.

@Steven Lowe I love Oak Park and used to live there a long time ago but haven't been able to find any properties that make sense for me since I invest for cash flow. Austin has a much lower price per door. Cicero and Berwyn work too but they have some tricky city ordinances you have to be aware of.

@Gary Guidi great post and congrats! Just wondering how cumbersome and headache free or not the renovations on each unit were for you? Did the renovations take up a lot of your time before stabilizing the property?

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you